AutoZone Keeps Revving

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Car lovers' do-it-yourself source AutoZone (NYSE: AZO) got a crummy break this morning. It released some very respectable second-quarter numbers, only to see its shares take a 5% dive after word of a computer operating system-related lawsuit from pugnacious software provider SCO Group (Nasdaq: SCOX).

When we last checked in with the Zone, Fool Alyce Lomax commented on the way the firm was outrunning competitor Pep Boys (NYSE: PBY) by making the most of sputtering sales, a habit also highlighted by Jeff Hwang here. Today's numbers show the company is staying the course.

Revenues rose 3.4% to $1.16 billion, while net income spiked 15.6%. Due to the firm's ongoing share repurchase program, earnings per stub jumped 32% over last year's second quarter, to an estimate pummeling $1.04. With same-store sales relatively flat, AutoZone looks like it's making all the right moves to not only stay profitable, but to become even more profitable and efficient. Investors can gloat over the bonuses of a 1.4% improvement in operating margins and an increase in return on invested capital from an already exceptional 21.4% to an even more exceptional 24.5%.

It's refreshing to see a company firing on all cylinders, despite the fact that it's not benefiting from the fabbo retail spending spree being reported by big-box neo-competitors like Wal-Mart (NYSE: WMT) and Target (NYSE: TGT). Others have voiced worries about the effect that America's new-car craze might have on AutoZone's sales, but in my neighborhood shiny, new gas chuggers are accompanied by driveway-dwelling jalopies in need of fixing.

As for the Linux lawsuit, shareholders need not overreact. SCO's strong-arm tactics have raised the ire of the entire computer industry. AutoZone's cash flow for the first half of the year is equal to SCO's entire cash stash. That will make for a lopsided battle should this become a legal war of attrition.

AutoZone looks like a decent bargain at today's prices given its strong record of squeezing earnings out of modest sales increases. At $84 per share, it trades at under 15 times trailing earnings and 13 times forward estimates. With predicted earnings growth of 15% for this fiscal year, and a history of expectation-beating performance, investors should give serious thought to getting in this Zone.

Wondering how to connect the doohickey to the thingamajig? Ask the experts at the Fool's Buying and Maintaining a Car board.

Fool contributor Seth Jayson feels manlier every time he buys parts at the neighborhood AutoZone. He has no stake in any companies mentioned above.